Energy Transition: Getting the Balance Right

July 5, 2016 | 00:00

Energy Transition: Getting the Balance Right

Decarbonising the energy system involves adding renewables to the generating mix, but their relative costs, and the ease with which grids can accommodate such intermittent supplies at scale remain in dispute. Both topics were important areas of discussion at the June 1st FT Energy Transformation Strategies event. In this article we look at some of the points raised, and discuss the issue of renewables and grid development in more detail with J...

Decarbonising the energy system involves adding renewables to the generating mix, but their relative costs, and the ease with which grids can accommodate such intermittent supplies at scale remain in dispute. Both topics were important areas of discussion at the June 1st FT Energy Transformation Strategies event. In this article we look at some of the points raised, and discuss the issue of renewables and grid development in more detail with Julian Leslie, Head of Network Development at the UK’s National Grid.

While speakers at the FT event disagreed over the relative costs of coal, gas and renewables, they did agree that a combination of generating assets would continue to be needed in order to balance markets, at least until commercial storage arrives. However the speed and extent of the transition to renewables and other lower carbon alternatives was fiercely debated.

Philip Lambert, CEO of Lambert Energy Advisory called into question the IEA’s accuracy in measuring the cost of renewables, suggesting that the real costs per unit carbon saved were much higher if intermittency, backup requirement, system balancing and other factors were included: “The IEA’s rigor on these cost audits is not good enough at the moment… The ‘high priest’ of the renewables transition, Germany, illustrates this. Here the audit was not done thoroughly… We have the equivalent of 1 million barrels of oil equivalent per day [mboe/d] of highly subsidised installed renewable capacity at great public expense – half offshore wind and half solar, with low utilization - at just 10% for solar - that is providing just 130,000 boe/d of output. The German population was promised it would all be worthwhile because it would drive down carbon emissions – but emissions are 40% higher per capita than the UK.”

Despite Germany’s focus on renewables, a German government-appointed commission said this year that its 40% CO2 emissions reduction target probably won’t be reached by 2020. At the same time, inflexible capacity means there are sometimes power surges turning prices negative and flooding neighbouring markets with cheap power – forcing Poland and the Czech Republic to invest in technology to avoid blackouts from power surges. In 2015, 44% of Germany's electricity production was still generated from coal, 31% from renewables, 11% from other fossil fuels, and 15% from nuclear.

Laszlo Varro, Chief Economist at the International Energy Agency (IEA) responded by saying that the IEA’s renewables audits did indeed need revision, but downwards rather than upwards. “Yes, renewables are subsidised at $110bn but it is $500bn a year for fossil fuels – that is our current assessment,” he said, referring to hidden subsidies on hydrocarbons.

He contrasted Germany with South Africa, where solar was far more productive due to the higher solar intensity, and combined with coal is better fitted to the demand pattern – making it highly effective and low cost. He said solar was indeed not as efficient in Germany, where peak demand is in the evening during winter. “Germany is not a model for others, as it switched off nuclear at the same time… It is a more expensive and more difficult decarbonisation process, but the Germans decided to tackle it this way and are on track.” German Feed In Tariff policy is expected to switch to an auction system soon, which should slow renewable additions, subsidy growth and power surges.

Scott Foster, a director at the UN Sustainability Division said the German system needed to value flexibility: “The Energie Wende points to the need for a broader set of policy measures to make the system work properly. Coal is becoming more flexible to match renewables, but you still need more flexibility… Now the systematic application of data enables alternative flexibility in system such as demand reduction and car battery storage.”

While they may be intermittent, distributed solar has eaten into peak summer demand across Europe, reducing the call on centralised power plants linked to transmission networks. Francesco Starace, CEO of Enel, said distributed generation in Italy had cut demand sharply over recent years. He said electricity flow was no longer unidirectional, from big power plants to final clients, with the number of inverted flow HV/MV transformers rising 322% between 2010 and 2015. Peak power requested by the transmission grid fell 39% over the same period - with high solar input pushing peak demand from the middle part of the day into the evening.

Greater Flexibility

Julian Leslie, Head of Electricity Network Development at National Grid said solar and other distributed generation had also reduced summer transmission system demand in the UK significantly, with almost 11GW of solar now installed in distribution networks – well over 25% over peak summer demand. But he said that as solar capacity rises, generators that feed into the transmission network had to be increasingly flexible, especially during days of variable cloud and wind – a common feature of UK summer weather. Gas, which dominates UK back-up to renewables is generally more flexible than Germany’s coal plants allowing easier balancing, as well as emitting less CO2.

The costs of altering or “re-jigging” transmission networks and balancing the market were among the factors that needed to be taken into account by the IEA and others when measuring the true costs of renewables, according to Mr Christof Ruhl, Head of Research at Adnoc. “The huge expense and these additional costs have put others off following Germany,” he said. But Mr Leslie said the balancing costs were not substantial, so far at least. In the UK he said trading to balance the market made up only about 2% of the total traded volume.

Mr Leslie acknowledged that currently the system was unable to call on solar to balance the transmission grid, all of which is “non-dispatch-able”, and part of distribution networks. But this may change as aggregators propose bringing several solar farms together as a dispatch-able resource, which the National Grid could call on as and when needed. In the UK all wind over 100MW has to be dispatch-able, although for 50-100MW it’s a commercial decision based on how the plant wants to operate. Less than 50MW and they are not in the balancing mechanism, apart from a few in Scotland. Because so much of the wind is dispatch-able - more than 7GW now – it has more of an impact on price than solar fluctuations.

Mr Leslie said renewables were certainly lowering prices, but that this was necessary to decarbonise the system. “Yes, renewables are displacing older coal and gas capacity, because they can’t get the hours and price required to manage fixed costs, and so on… but rightly so, as this is the process required for de-carbonising the electricity system.” He said the UK’s capacity mechanism would ensure sufficient backup when renewables were low. Rather than capacity market subsidies rising in line with the proportion of renewable capacity, additional flexibility from smart systems and demand management, along with storage and other distributed inputs, would help balance renewable swings.

“The advent of smart metering means we can get consumer based tariffs that will make the consumer think about how they consume energy. It’s the beginning of a journey – we have already begun the decarbonisation of generation side, now the [UK] government seems keen to initiate the same process on the consumption side, which involves changing consumer behaviour in order to match demand with generation, rather than supply with demand as has been the case traditionally.”

“This fits with the turn-up contracts we have negotiated this summer – we are playing a more active role in contracting demand side services, not just turn-down as in winter, but turn-up for a few hours and we will pay them to do so. This also allows buyers to consume energy when energy prices are low because there’s a surplus of renewables on the network. So you can see it’s the beginning of an incentive for all of us to improve controllability over when we demand electricity. However, if storage becomes commercially viable and takes off, we will be able to consume power exactly as we do today.”

“Wind is hugely flexible too; it can switch up and off, without fuel changes – unlike gas or coal. However, this flexibility is currently very expensive as generators want to get their subsidies - so they are keen to operate continuously. As subsidies are reduced, they will cease to be the driver of operations, and we will see all kinds of flexible services coming from this type of highly flexible supply.”

He noted that another complication may come from a return of rising demand. “As we decarbonise the demand side, including transportation and heating, the demand for power is expected to begin rising again – it has been falling for a while now.”

While German coal use remains at well over a third of the total, the UK managed to switch off coal altogether for the first time ever in May. “It’s tricky getting our control systems to be comfortable without coal, but we are coping well so far,” said Leslie. At the same time renewable energy sources in Germany briefly supplied close to 90% of total demand, illustrating the progress being achieved there too. But as that figure approaches 100%, the marginal benefit of any additional intermittent renewable capacity will fall, and the focus of carbon reduction would be best switching to supply and demand flexibility and the non-renewable back-up power.